PI Brief Update

Non-party costs orders against solicitors where a CFA is in place - Anisa Kassamali, Temple Garden Chambers

14/03/23. PME v The Scout Association [2023] EWHC 158 (Senior Courts Costs Office) considered an application for a non-party costs order (“NCPO”) against a claimant’s solicitors, where the claimant was protected by QOCS.

Background

The claimant’s claim for personal injury was settled by way of the defendant’s Part 36 offer of £29,500 on 22 August 2017.

The claimant served a schedule of costs in August 2017. The defendant offered to settle the claim for costs at £22,500 in September 2017 on the basis of that schedule, but the claimant rejected that offer. Various proceedings in relation to costs followed, which resulted in two costs orders being made against the claimant.

It was not disputed by the parties that the claimant was protected by QOCS. It followed that the defendant had no means of recovering the costs which the claimant was ordered to pay, without the permission of the Court.

The Court was asked to consider the defendant’s application for a NCPO against the claimant’s solicitor. The defendant’s position was that it had “had no intention of attempting enforcement against the [claimant] and instead [sought] an order that [the claimant’s solicitor’s]pay all of those costs” [26].

Judgment

Costs Judge Leonard refused the defendant’s application. He substantively accepted the claimant’s submissions (see, in particular, [129]-[148]).

The Judge noted the relevance of the claimant’s retainer agreement with his solicitors. There was a capped CFA agreement in place which provided that the claimant should, in the event of success, pay a success fee of 100% (irrecoverable from the defendant directly). It also provided that any shortfall between the sums payable by the claimant to his solicitors under the CFA and the costs and disbursements recovered from the defendant were to be capped at 15% of the damages received by the claimant. Accordingly, the only party with a “tangible financial interest” in the outcome of the costs proceedings was the claimant’s solicitors [35].

Against this background, the defendant submitted that the solicitors were the ‘real party’ in the costs proceedings (see [52]-[62], in particular [62]). It was the solicitors who had funded the costs proceedings, paying disbursements as well as deploying the value of their fee earners’ time. They controlled the proceedings and stood to benefit from them. It was submitted that they were “in every respect, the ‘real party’, to the complete exclusion of the Claimant” [62].

The defendant also submitted that a NCPO against the claimant’s solicitors would not imperil the policy of QOCS (see [64]-[85]). The following arguments are of particular interest to practitioners:

· [76]: “The [claimant] remains fully protected [under the QOCS regime]. It is no part of the policy behind QOCS that claimants’ solicitors should be allowed a ‘one-way bet’ when it comes to assessment of their costs, so that challenges and appeals can be pursued which, if successful, would result in an increase in the recoverable costs and payment of their costs by the [defendant], but in the event of failure cost them nothing except their own outlay”.

· [78]: “The [claimant’s solicitors] do not require special protection. They are not in an asymmetric relationship with the [defendant] and its solicitors. They are perfectly capable of judging for themselves what is a reasonable level of costs recovery and weighing up the risks and benefits of rejecting an offer or challenging the result on detailed assessment.”

However, the Judge was ultimately aligned with the claimant’s submissions.

The claimant responded that the defendant was seeking to “circumvent what it perceives to be the unsatisfactory operation of the QOCS rules as drafted…” [87]. The “gateway issue” for a NPCOwas whether a solicitor was a real party to the litigation. This relied on an assessment of whether the claimant’s solicitors were acting outside the role of a solicitor. The claimant’s solicitors could not be said to be acting outside of this role. They were doing no more than was permitted by the relevant funding legislation.

The claimant’s submissions on CFAs, including in relation to access to justice, are of relevance to practitioners operating in this arena. These submissions were largely accepted by the Judge:

“97. ‘CFA lite’ arrangements are a well-established and permissible form of funding and a permissible inroad into the indemnity principle. So too are CFAs, like that between the [claimant] and [claimant’s solicitors], where the client has a residual liability, but such liability is capped.

98. In order for such a permissible funding regime to work, it is fundamental that in successful claims the between the parties costs may be recovered from the opponent. If they cannot be, the very essence of the "no win-no fee" funding regime, incorporating the expectation that in the event of success the majority of the fee for winning will be paid by the opponent, would be disrupted. "CFA lites" would simply be unworkable.

99. Similarly, capped CFAs would cease to function effectively since the only reason such caps can be offered is in the expectation that all or the majority of the costs in a successful case will be recovered between the parties.

…

102. It is well known that arrangements such as CFA lites represent a form of legal fiction, permitted and widely used in order to enhance access to justice. It is a (and probably the) core part of that legal fiction that the costs are recovered in the client's name in permissible circumvention of the indemnity principle despite the client's lack of a conventional liability for such costs.

…

104. With capped CFAs, the fiction is similar but less stark. The client does have a liability over and above the recovered between the parties costs, but that liability is limited and depending on the facts the relevant cap may be reached, as it has here, so that greater or lesser recovery of base costs between the parties will again make no immediate difference to the [claimant’s] liability.

105. There is no greater warrant in such a case for treating the solicitor as the "real party" than in a CFA lite case. In both cases, the solicitor is not acting outside the role of the solicitor. The solicitor is rather doing that which is at the very heart of such funding arrangements if they are to work at all, which is seeking to recover the between the parties costs.”

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